Affordable housing must move beyond rent control

Extending New York's rent control regime might do more harm than good.

A little-known provision in New York’s existing rent control laws might provide a better way to solve the city’s affordable housing crisis.

In November 2014, New York’s highest state court ruled that rent-stabilized apartments are public assistance benefits akin to disability benefits or welfare. In a case involving an 80-year-old widow facing personal bankruptcy, the New York Court of Appeals held that the woman’s lease could not be sold as a personal asset in order to satisfy her creditors.

While many affordable housing advocates have hailed the court’s decision as a victory for low-income tenants, this ruling may ultimately do more damage than good to the availability of affordable housing in New York. In fact, this ruling underscores the degree to which New York’s rent stabilization laws are broken.

This troubling decision is the culmination of a trend that has been years in the making: the steady acceptance of rent regulation as a permanent part of our housing landscape rather than the stopgap it was always intended to be.

Originally, New York’s rent stabilization law was passed as an emergency measure meant to shore up affordable housing for the short-term until a more sustainable solution could be passed. The Emergency Tenant Protection Act, the basis of the current regime, was adopted as a quick fix in 1974 as vacancy rates in New York City plunged to all-time lowsand was first set to expire in 1976.

This so-called housing “emergency” has now lasted for more than 40 years.

Today, rent regulation does little to resolve the housing crisis and is arguably making the problem worse. Critics from across the political spectrum, including Nicole Gelinasand Paul Krugman have noted that rent regulations make living in the city less affordable and limit the availability of housing.

Fortunately, there are better ways to address New York City’s affordable housing shortage. The 1974 law itself outlined a means by which the City could wean itself off rent stabilization and focus instead on more meaningful long-term housing programs. The law permits landlords to vacate and demolish existing rent-stabilized buildings, as long as a new building is built with 25 percent more apartments.

There are currently about 1 million rent-stabilized units, so this program could create 250,000 more housing units. Unlike rent regulation, however, this provision has never been enforced in practice. With the city growing faster than ever, the time is ripe for such redevelopment.

There are a number of ways to implement this provision and spur redevelopment, including updating zoning regulations that limit everything from the height of an apartment building to the number of windows required in each room. Many of these regulations date from the last century and need to be changed to reflect modern lifestyles.

By lifting this regulatory burden, we could incentivize developers to replace existing buildings with larger ones containing more housing units in a financeable mix of market rate and affordable middle-income housing. This approach would also permit more intensive use of underutilized sites without relying on public subsidies or massive government investment in new infrastructure.

This summer, Albany lawmakers will have the opportunity to wipe the state’s antiquated rent laws from the books and begin a new chapter in the fight for affordable housing.

New York’s rent stabilization are due to sunset in June. At that point, it will be up to the legislature to decide whether to renew the law again, though the recent Court of Appeals decision may have already dealt a genuine blow to its constitutionality. By characterizing rent stabilization as public assistance, the Court may also have undermined the constitutionality of this form of rent regulation by putting an undue burden arbitrarily on a handful of property owners.

The ruling of the state Court of Appeals moreover goes against years of precedent that has consistently differentiated rent regulation from public assistance benefits such as food stamps. In fact, the dissenting judges in the November decision noted that they had not “ever seen or heard the words ‘public assistance’ used to refer to such a program.”

It is vital that lawmakers seize this opportunity to usher in a new, sustainable solution that could set a national precedent for encouraging more innovation in affordable housing.

Albany lawmakers should strongly consider letting the state’s rent stabilization laws expire or phase out when they come up for renewal this June. Preserving the status quo is not the answer and only keeps the price of housing sky-high. The choice could not be clearer.

Leonard Grunstein is a Managing Member at Hanlen Real Estate Development & Funding LLC of Teaneck, NJ. He has decades of experience in real estate and law and published several academic works, including in the Real Estate Finance Journal. You can follow him on Twitter @lengrunstein